For more than two months, we have been looking forward to this day, the 31st of March, as I write this. Today is the day of the landmark USDA Planting Intentions Report.
Ever since the January Inventory report, we have been touting this day as the day we get the first big fundamental news of the year.
Now comes the challenge. The report comes out at noon, and I have to turn this piece in by 10 a.m.! So, what do we anticipate?
At issue is the statistic traders are waiting for — corn acres. If we are lower than anticipated, corn prices will go higher. At the same time, the acres will switch to beans and they will likely react in the opposite direction.
And, as usual, the actual numbers may not be as critical as the spin.
Market expectations
In my mind the big question is not the USDA projection of planted acres, but that number in relation to what the market has been trading. That is, what are current prices based upon?
Looking at current numbers can be interesting. The trade supposedly is estimating an average of 88.731 million corn acres to be planted. Last year, we had 90.597 million corn, 83.701 soybeans. Everyone expects less corn, more beans, but quantifying that is interesting.
When Kent Beadle from the Russell Consulting Group in Minneapolis spoke at our marketing meetings last week, he used the number of 88 million, a little less than the average.
One prominent adviser has used the official number of 87.5 billion, but says he has a farmer survey that shows 85.5. In other words, he is not willing to actually expect 85.5, but that is what his farmers tell him.
I have long thought the planted acres would be more like 86 million, but that is based on nothing but conjecture. At current prices and current costs of production, I think farmers switch to beans.
Also, I think that as ethanol mania works its way out of our system, we go back toward equal acres of corn and beans. It was a big deal when bean acres got to be equal to corn a few years ago. Then the growth of ethanol demand swung is in the other direction. Now, cheap prices have us swinging back.
The average estimate of bean acres going into the report stands at 85.919 acres. That would be a gain of more than 2 million acres over the 2014 crop final of 83.701 million.
So, at noon, anything can happen.
Suppose the corn acres come in at the average estimate. We can rally corn sharply as a knee-jerk reaction to smaller USDA numbers. Then, we could trade lower, with the idea that the change was already “in the market.” We could actually end the day lower.
Or, we could be surprised by the USDA number’s being lower for corn than expected. That would spark a big reaction, followed by a correction late in the day or tomorrow as traders decided they had secretly thought the number would be that low, they just didn’t publish that number.
Or, the reaction could be higher, and stay there as the reality of a smaller crop crept in. There could be follow-through tomorrow to make new highs.
We are currently trading a quarter below the recent high, and there is plenty of room to rally without actually changing the chart.
Or — are you ready for this — USDA could surprise us with acreage higher than expected. We could be off a million acres from last year’s 90.597 million and still not be as low as traders think. This could get an ugly market started.
Remember last week when I said we really didn’t know what “cheap” was. Right now we are prepared for better markets sometime this summer. That may be wishful thinking, but it can happen.
Give us lower acres, a trendline yield of 167.4 bpa, 88 million acres, and we get a crop of 13.48 billion bushels. That would lower carryout. Last year we had 14.21 bushels, and the difference is the carryout we now have and cheap prices.
Keep in mind that better corn prices probably come at some point with cheaper beans. Are you willing to sell the new crop now, or risk 8.25 beans at harvest?
